Question 5 (15 marks = 5 marks each)

A customer of your CFP office comes to you and asks to receive valuable advice supported with calculations on the purchase of a mini apartment. She/he has a choice to pay today entire old credit card debt in the amount of $HK 80,000 that has annual interest rate of 3% and to improve its FICO credit score from 640 to 700. The improvement of FICO score would lead to 1% decline in the mortgage interest rate and be 5% instead of 6%. If the price of an apartment is $HK 700,000 and mortgage taken over 20 years with no down payment, calculate the following:

a. Annual payments for this loan in both cases

b. Compare the total amount of interests the person would pay on these loans over the life of loan in both cases (when FICO score is 640 and when it is 700)

c. Provide an advice to this customer how she/he should act.